Borrowers whose private student loans were discharged in court earned more, paid off other debt and were more likely to move for work, new research shows.
The impact of student loan forgiveness goes far beyond a reduced debt balance for borrowers, according to a new study.
Researchers from Harvard Business School, Indiana University and Georgia State University examined the effects of debt cancellation for borrowers whose private student loans were tossed out in court after their creditor, National Collegiate Student Loan Trusts, couldn’t prove the chain of title. In recent years, judges have tossed out numerous lawsuits against student borrowers because National Collegiate couldn’t establish in documents that the company actually owned the debt.
The study found that the borrowers saw a boost in income, were more likely to move and lowered their debt balance outside of student loans. Private student loans typically are taken out by students at private institutions, and the researchers focused on borrowers in default.
“They got in better financial shape after their loans were dismissed. And their increased mobility means they have additional opportunities for higher-paying jobs,” said Marco Di Maggio, an associate professor of business administration at Harvard Business School and one of the researchers who conducted the study.